ACCC alarmed by supermarket fuel discounts: Sims says profit margin on fuel being eroded by supermarket chains

ACCC chairman Rod Sims has intensified the pressure on Coles and Woolworths to stop offering hefty shopper-docket fuel discounts, which the regulator believes may be in breach of competition laws.

Speaking at the Australian Institute of Company Directors Leader’s Edge lunch, at which SmartCompany was in attendance, Sims said the fuel vouchers made it impossible for independent fuel stations to compete.

The ACCC has for some time raised concerns the supermarkets are using their market power in food and grocery sales to gain control over the Australian fuel market, leading to a lessening of competition and ultimately higher prices for consumers.

“If Coles and Woolworths want to offer their customers a discount, it should be off supermarket products, not petrol,” Sims said.

“The net profit margin on petrol is way below 8 cents,” he told journalists after the lunch. “If you keep running this thing out for [a] length of time, there will be the inevitable consequences.”

Sims said the regulator had been approached by independent fuel stations who said their willingness to enter and compete in the market had certainly diminished.

The ACCC has been investigating the issue for some months, Sims said, and was further alarmed when last summer the base fuel discount rate reached 8 cents a litre, doubling the discount for a full five months. In some instances, shoppers at the major supermarkets are given vouchers rewarding them with 45 cents off per litre.

Sims said the fuel discounts could also significantly punish consumers who do not shop at Coles or Woolworths, and could lessen the competition on the un-subsidised price of petrol, because all the price-conscious consumers were likely to use discount vouchers.

“We’re in the middle of this investigation… But when the shopper dockets got up to 8 cents a litre for five months, I think it’s very clear that sort of behaviour is going to make it very hard for companies that aren’t getting their fuel sales subsidised by supermarkets. They’re going to find it very hard to compete.”

The ACCC is still some months off finalising its investigation into the use of fuel discounts. When that investigation is finished, it will be required to go to court if it is to secure an injunction on the supermarkets’ use of fuel discounts.

The peak motorists lobby, the Australian Automobile Association, welcomed Sims’ comments.

“The motoring clubs have been raising these concerns for some time, with clear evidence that independent service stations are struggling to compete on prices,” AAA chief Andrew McKellar said.

“Let’s not kid anyone, supermarkets are not offering fuel discounts as a measure of goodwill or charity, they will be making up the profit elsewhere in their business. Discounts of 40 cents per litre or more are unsustainable in the long term and will drive out retailers not linked to the supermarkets chains.”

The ACCC has several investigations currently running into the misuse of market power by the two supermarket giants, including one into their dealings with suppliers.